Over the past decade, and further spurred by the recent recession, the energy sector has experienced a notable uptick in private equity investment and other forms of non-traditional ownership. This trend is particularly prevalent in the pipeline industry. The goal is often to only hold the assets for a relatively brief time, then sell them at a profit. Depending on the structure of the ownership and/or investment, private equity firms, hedge funds and other investors may find themselves holding assets they know little about from a regulatory perspective.
The number of private investments in the oil and gas industry in the past 10 years has more than doubled, and it comes as no surprise that these are largely profitable ventures. PWC, “The US Energy Revolution: The role of private equity in oil and gas” (February 2013), citing to IHS Herold 2012 data, “America’s New Energy Future: The Unconventional Oil & Gas Revolution and the US Economy.” The U.S. Energy Information Administration (EIA) reports that oil and natural gas production in the U.S. has seen record-breaking increases, due in large part to new shale resource plays. U.S. Crude Oil and Natural Gas Proved Reserves, 2011 (August 1, 2013).
Interestingly, nearly 20% of the financing in the tight oil and gas shale plays has come from foreign sources. See EIA Report (April 8, 2013).
With ownership, however brief, comes challenges in the regulatory arena. Non-traditional investment-ownership structures are still obligated to provide essential operations and maintenance oversight of the assets, regardless of whether the goal is to hold or sell the investment. It is imperative that new investors have a clear understanding of the statutory and regulatory compliance obligations and risks associated with ownership and operation of pipeline assets, in order to navigate the regulatory maze as well as to minimize liability and enforcement exposure. This is especially true for an industry where regulatory oversight and enforcement is on the rise.